City cuts back on insurance

A plan approved by City Council covers about 10 percent of Clearwater's assets, which are valued at $540-million.

By MIKE DONILA
Published March 17, 2007

The insurance crisis has officially hit Clearwater.

With the city's coverage plan set to expire April 1, council members approved a new one Thursday, but it will cover much less of the city's assets.

Instead of insuring all of its property - such as buildings, contents and vehicles - the city will cover only about 10 percent of its assets, currently valued at $540-million.

The coverage has been scaled back so much that if a storm wiped out the city, Clearwater would have just enough to rebuild the $40-million bridge to Sand Key and a few smaller pieces of property.

Council members say that this is the best they could do in today's insurance market, but that it's better than what other cities are buying, especially Largo, which decided to forgo wind insurance altogether.

"This is the difficulty we face," council member John Doran said. "We might take risks with our own property, but we're not willing to take risks with the peoples' property."

A recent risk analysis conducted for the city said that Clearwater every 100 years can expect a storm that would cause roughly $34-million in damage.

"The difficulty is trying to determine what year that's going to be," Doran said.

The city says it can't afford to fully cover its assets. So, council members agreed to pay a premium of $2.9-million for a one-year policy that insures up to $50-million, protecting it from wind, fire and explosions. Additionally, the plan insures up to $20-million in damages from flooding.

The city could have spent another $137,500 to get the maximum $55-million coverage plan that was offered, but a majority of the council said the $137,500 should be put into strengthening buildings against lesser storms.

The measure was approved in a 3-2 vote with council members Bill Jonson and J.B. Johnson dissenting.

"Our vision for the city is that we're supposed to protect the city ... and if we're able to get $55-million, isn't that better to tell people we got all we could rather than just the $50-million," Johnson said. "We should protect the public further, even though it's just $5-million more."

Mayor Frank Hibbard said strengthening buildings could help them survive lesser storms that they normally wouldn't.

City leaders acknowledged the risk, but said there's not much they can do.

The city is currently insured through a mixture of insurance policies and paid about $1.7-million for them in the past year. Under the new plan, the city's deductibles - about $500,000 - will stay almost the same.

"I never thought I'd see a market like this, but it has softened," said Paul Erickson, area senior vice president for Arthur J. Gallagher & Co., the insurance brokerage and risk management services firm working with the city. "But, if we have another hurricane - a severe hurricane like a (Category) 2 or 3 in a populated market - it could get tougher again.

"If we go another year without a hurricane, I see it softening further, plus there will be more competition."

The city also has $22-million in its central insurance reserve. In a major hurricane, Clearwater, like other local governments, would probably also receive aid from the Federal Emergency Management Agency.

In the worst case scenario, if the city's losses greatly outstrip its insurance coverage and federal aid, exactly what its leaders would choose to rebuild is unclear.

Hibbard said that some police precincts and recreation centers would probably be relocated and others not built at all. But city leaders say it's a topic they hope to address soon.